“The incentive plan needs to align the salesperson’s activities with the firm’s objectives.”[1] Toward that end, an effective plan may be based on the past (growth), the present (comparison with others), or the future (percentage of goal achieved).
When designing a compensation plan for a sales force, managers face four key considerations: level of pay, mix between salary and incentive, measures of performance, and performance-payout relationships.
The key is to start with a forecast for sales and a range within which each salesperson's compensation should reside.
Based on forecasts for the coming year, the firm may have room to hire more salespeople, or it may need to reduce the size of the sales force.
On the basis of a given value for projected sales, managers can determine the break-even number of employees for a firm as follows: